Stocks Slightly Lower into Final Hour on Weaker Economic Data, Profit-Taking

BOTTOM LINE: The Portfolio is slightly higher into the final hour on gains in my Technology longs and Medical longs. I have not traded today, thus leaving the Portfolio 75% net long. The tone of the market is negative as the advance/decline line is lower, most sectors are declining and volume is above average. Investor anxiety is very high. Today’s overall market action is neutral. The VIX is rising .96% and is high at 28.54. The ISE Sentiment Index is around average at 143.0 and the total put/call is high at 1.11. Finally, the NYSE Arms has been running above average most of the day, hitting 1.54 at its intraday peak, and is currently 1.03. The Euro Financial Sector Credit Default Swap Index is rising 8.66% today to 76.83 basis points. This index is down from its record March 10th high of 208.75. The North American Investment Grade Credit Default Swap Index is rising 3.91% to 109.79 basis points. This index is also well below its Dec. 5^th record high of 285.99. The TED spread is up 1 basis point to 20 basis points. The TED spread is now down 445 basis points since its all-time high of 463 basis points on October 10th. The 2-year swap spread is rising 2.21% to 34.75 basis points. The Libor-OIS spread is unch. at 12 basis points. The 10-year TIPS spread, a good gauge of inflation expectations, is down 2 basis points to 1.71%, which is down 96 basis points since July 7th. The 3-month T-Bill is yielding .09%, which is unch. today. The broad market’s reaction to today’s weaker-than-expected economic data is a positive. Large-cap Growth stocks are outperforming, with many market leaders higher on the day. Moreover, Steel, Paper, Software, Computer Service, Airline, Food, Insurance and Drug shares are all higher on the day. Despite a weaker US dollar today and Iranian tensions, oil is unable to build on yesterday’s advance. The 10-year Treasury note yield is reversing higher into the afternoon and looks poised for further appreciation over the very short-term as significant supply hits the market next week. I suspect we could see some meaningful short-covering materialize pretty soon if the bears are unable to capitalize on recent technical action and disappointing economic data. Nikkei futures indicate a -31 open in Japan and DAX futures indicate an +4 open in Germany on Monday. I expect US stocks to trade mixed-to-higher into the close from current levels on short-covering and bargain-hunting.